Feds investigating KeySpan
BY TOM MCGINTY - June 7, 2007, 5:31 PM EDT
KeySpan Corp.'s revelation this week that the U.S. Department of Justice is seeking information about its role in New York City's troubled electric-energy market did not sit well with the Long Island Power Authority, which had voted just a few hours earlier to approve KeySpan's takeover by National Grid.
The DOJ issued a "Civil Investigative Demand" to KeySpan on May 31, but the company didn't reveal that fact until Wednesday evening, in a filing with the Securities and Exchange Commission.
LIPA CEO Richard Kessel said the authority's board "had no knowledge whatsoever" of the DOJ investigation prior to its vote early Wednesday afternoon endorsing the KeySpan-Grid merger.
"Had we known, we would have postponed the vote," Kessel said, declining to comment further.
But KeySpan vice president David Manning downplayed the importance of the investigation, saying there is no indication the DOJ is specifically targeting the company.
"They're doing a civil investigation of the New York energy market, and we're a large player. It's that simple," Manning said.
A DOJ spokeswoman confirmed the investigation into the city's energy market, but declined to comment further.
As Newsday reported last July, bidding strategies by KeySpan and other large power generators in the city kept the fees they are paid for making their plants available pegged at regulatory price caps, even though significant surplus capacity was added last year.
From March 2006 through April 2007, utility costs were $119 million higher in the city and $38 million higher in the rest of the state than they would have been if the generating firms hadn't used their dominant positions to keep prices high, ConEd estimated in a filing with the Federal Energy Regulatory Commission.
KeySpan, NRG and Orion Power bought most of ConEd's city generating plants in the late 1990s as state regulators moved to replace monopoly utilities with a competitive energy market in which companies could own either the wires that carry power or the plants that produce it. The plants Orion bought are now owned by Astoria Generating, a unit of US Power Generating Company. An NRG spokeswoman said the DOJ has not contacted the company. Astoria could not be reached.
With all of the capacity in the hands of just three firms, regulators feared they could demand exorbitant rates for making their plants available to ConEd, so a price cap was instituted.
No one was surprised when prices remained at or near the cap during the first half of this decade, because the in-city supply of power was barely adequate. But last summer, when the price remained pegged to the top of the scale despite the surplus, regulators and elected officials were alarmed.
"I am concerned that the regulatory structures in place to protect consumer interests have failed," Assemb. Paul Tonko (D-Amsterdam) said in a letter sent to state and federal regulators.
The New York Independent System Operator, the non-profit organization that runs the state's electricity markets, said the generators had followed all market regulations and broken no laws. NYISO later proposed lowering the price caps, but the Federal Energy Regulatory Commission rejected that approach.
Copyright 2007 Newsday Inc.
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